Oklahoma oil producers have seen prices tumble 12 percent this summer.
Oil is a worldwide commodity largely influenced by global supply distributions and demand patterns, especially in key areas like the Middle East. But the rapid increase in domestic oil production in recent years has led domestic prices to trend below the international Brent crude benchmark.
West Texas Intermediate crude, priced in Cushing, is seen as the benchmark for domestic crude. The WTI price closed at $93.88 Tuesday, up 2 cents on the day, but down from $105.18 on July 1. Brent closed at $102.58 Tuesday.
While WTI is a benchmark, it’s often not the price Oklahoma producers receive for their oil. Crude oils typically draw different sales prices based on viscosity (light or heavy) and sulfur content (sweet or sour.)
Historically, light, sweet crude has been in strongest demand and commanded the highest price. But refineries each require a specific blend of oils. As production has increased of light, sweet, domestic crude, local prices have swung based on refinery demand.
Oklahoma Sweet crude, which represents most oil production in the state, settled at $89.75 Monday, down nearly 12 percent from $101.75 on July 1.
Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Conn., said market fundamentals did not appear to justify the rapid price spike early in the summer and that prices likely have fallen too much in recent weeks.
“Domestic crudes surged above $100 a barrel early this summer on fears of supply disruptions in Ukraine, Iraq and Syria,” McGillian told The Oklahoman on Tuesday. “Since then, the market has lopped off more than 10 percent. I think we have completely eliminated the geopolitical risk that was priced into crude, but we haven’t seen resolution of any of the issues that created that risk.”
If tensions continue in those parts of the world, prices could increase again, McGillian said. But the price is not solely dependent on supply.
“If we start to see economic improvements in Europe, I think it will start to put a floor under the price and make a rebound,” he said.